Investment Funds Update: Europe- Issue 1, 2017

January 30, 2017

Legal and regulatory updates for the funds industry from the key asset management centres and primary European fund domiciles.



AMF Consultations - Corporate Finance Advice and Intermediation in Miscellaneous Assets 

The Autorité des Marchés Financiers (the “AMF”, the French financial markets authority) has recently launched two public consultations. 

The first consultation relates to the provision of corporate finance advice (or M&A advisory) and whether such provision of service constitutes a regulated activity or not. In its consultation, the AMF notes that this service is provided by either regulated or unregulated entities. As a result, the AMF consults to determine whether such activity should be regulated in the future (i.e., does it constitute investment advice). 

The second consultation relates to the French system of intermediation in miscellaneous assets. As a reminder, this legal regime applies to persons who (i) directly or indirectly, invite third parties to subscribed to life annuities or to acquire title to movable or immovable property where the acquirers do not perform the management thereof themselves or where the contract offers a buy-back or exchange option with revaluation of the capital invested, (ii) collects funds to that effect and (iii) is in charge of managing said property. Pursuant to the Sapin 2 Law, the AMF shall now do a prior control on proposal investments (whereas the control was a posteriori until now). The AMF therefore consults on the proposed modifications of its General Regulations reflecting this change. 

Read the AMF Public Consultation on corporate finance advice (in English) 

Read the AMF Public Consultation on intermediation in miscellaneous assets (in French) 

AMF General Regulations Update and AMF Position - Marketing Communication 

Ban for Certain Products Pursuant to the Sapin II Law, an Arrêté was published on 22 December 2016. This Arrêté inserted a new article, as set out in L533-12-7, in the French Monetary and Financial Code, which bans electronic advertising to retail investors of the riskiest and highly speculative products that are not admitted for trading on a regulated market or on multilateral trading facility. Following this Arrêté and in view of the Sapin II law, the General Regulation of the AMF (the “GRAMF”) was amended accordingly by inserting a new article to determine which specific financial contracts could not be advertised to non-professional investors. The new article 314-31-1 of the GRAMF lists the three categories of financial contracts that cannot be marketed to the public. Further to the update of the GRAMF, the AMF published on 10 January 2017 a position in the form of Questions & Answers providing specific details on the implementation of article 314-31-1. 

Read the Arrêté (in French only) 

Read the AMF position (in French only) 

Read the AMF news release (in French) 

Read the AMF news release (in English) 

AFG - Guide on the Governance of Management Companies 

The Association Française de la Gestion Financière (the French Asset Management Association, the “AFG”) published in January 2017 a guide of governance of French asset management companies which establishes the best practices for governance of such entities. The AFG stated that “it lists the good practices making it possible to establish a framework fulfilling the requirements of performance and ethics of the French asset management industry, thus contributing to the reinforcement of its international competitiveness”. Management companies are invited to implement the best practices described. Otherwise, they are encouraged to directly apply the “comply or explain” principle and to provide reasons leading to the non-application of the good standard practices recommended. The guide details, among others, the following principles: 

  • the institutions of governance of management companies; deontology principles; 
  • control of risks; and
  • equal treatment of investors. 

Read the AFG guide of governance of French asset management companies (in French only) 

AMF Positions - Compensation Policies of Management Companies 

Pursuant to the newly established Position n° 2016-14 and the update of the Position n° 2013-11, the AMF declared to ESMA on 5 December 2016 that the AMF will comply, as from 1 January 2017, with (i) the ESMA guidelines on sound remuneration policies for UCITS management companies (ESMA/2016/575) and (ii) the ESMA updated guidelines on sound remuneration policies for managers of AIFs (ESMA/2016/579), and therefore incorporate the guidelines aforesaid in its regulatory practices. With respect to UCITS management companies, the remuneration policy shall be established before the end of the first quarter of 2017 and applicable for the bonuses paid in 2018 on the basis of 2017. 

Read the AMF position N° 2016-14 (in French only) 

Read the AMF position N° 2013-11 (in French only)



BaFin Publishes KAMaRisk 

BaFin published the “Minimum Requirements on Risk Management for Investment Management Companies (Mindestanforderungen an das Risikomanagement für Kapitalverwaltungsgesellschaften - „KAMaRisk“) on 10 January 2017 which were subject to a consultation process until 23 November 2016. 

The KAMaRisk implements, inter alia, as a technical compliance standard, the statutory compliance requirements for loan originating funds as introduced by the UCITS-V-Transformation Act (OGAW-V-Umsetzungsgesetz) and stipulate (i) special compliance requirements on the origination of loans as well as (ii) minimum requirements on the risk management of German investment companies (“KVG”) managing AIFs which are granting loans for the account of their AIFs (Direct Lending) or which invest into (secondary) loans. 

The KAMaRisk is available in German 

BaFin Consults Draft Circular on Derivative Financial Instruments and Structured Products 

BaFin published a draft circular on derivative financial instruments and structured products on 2 January 2017 which will replace the circular on derivative financial instruments (published in 2000) and the circular on structured products (published in 1999). 

The draft circular contains guidance with respect to the use of derivative instruments and the investment in structured products and is directed at German pension funds and undertakings authorized for primary insurance business which are covered by the regulations of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz - VAG) addressing small insurance undertakings (sections 212 – 217 of the VAG). The circular will specify the requirements of section 15 (1) sentence 2 VAG dealing with the classification of investments in financial instruments as non-insurance business (versicherungsfremde Geschäfte), the Investment Ordinance as of April 2016 (Anlageverordnung) and the Ordinance for the supervision of pension funds (Pensionsfondsaufsichtsverordnung). 

The deadline for the consultation period of the circular will end on 31 January 2017. 

The draft circular is available in German 

BaFin Consults Draft Circular on Investments of Restricted Assets 

BaFin published a draft circular on investments of restricted assets for further consultation on 21 December 2016. It is directed at German pension funds and undertakings authorized for primary insurance business which are covered by the regulations of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz - VAG) addressing small insurance undertakings (sections 212 – 217 of the VAG). 

The circular will replace Guidance 4/2011 (VA) on the Investment of Restricted Assets of Insurance Undertakings and the circulars on investments in asset-backed securities and credit-linked notes and on investments in hedge funds will be repealed. 

The circular will specify the requirements set out in the Investment Ordinance as of April 2016 (Anlageverordnung - AnlV) and the Ordinance for the supervision of pension funds (Pensionsfondsaufsichtsverordnung) and will cover topics such as rules for capital investment management and the investment principles for insurance companies and it will further specify the types of investment set out in section 2 (1) AnlV. 

The deadline for the consultation period of the circular will end on 31 January 2017. 

The draft circular is available in German 

Investment Statistics as of 30 November 2016 

The German Investment Fund Association BVI in January 2017 has issued its latest investment statistics report dated November 2016, providing an overview of the net assets and net sales within the German investment fund and asset management markets. The statistics are broken down by asset class and provider. They provide information on net assets and net inflows of investment funds and assets outside investment funds. 



Central Bank Signs Off on CP86 with a Location Rule Compromise 

The Central Bank published its Third Consultation and Feedback Statement on CP86 on 19 December 2016. While the multi-location rule was abandoned, the final location rule which aimed to strike a balance between effective supervision (in Ireland) and availability of expertise (outside of Ireland), shifted the balance from promoter control to independent control. Dechert’s overview of this is available. 

Alterations to the Chinese Stock-Connect Infrastructure 

The Central Bank has updated their positions on the regulatory considerations around Irish authorised AIF seeking to acquire Chinese shares through the Shanghai-Hong Kong Stock Connect and Shenzhen Hong Kong Stock Connect. 

Central Bank Releases 15th UCITS Q&A 

The Central Bank has released its latest update to the UCITS Q&A. The Q&A contains updates mainly concerning: 

  • The transitional arrangements which apply to UCITS management company or UCITS self-managed investment company in relation to managerial functions, new supervision requirement and the retrievability of records; and 
  • The Central Bank does not permit sub-funds within umbrella funds, including ICAVs to have separate auditors. 

Revised AIF Q&As Issued 

The Central Bank released its 22nd and 23rd editions of the AIFMD Q&A: 

  • clarifying that with an existing QIF, when converting an Irish subsidiary to a private company limited by shares, new constitutional documents should reflect the QIF investment objective and policy; and 
  • new information regarding loan originating Qualifying Investor AIFs such as loan originating Qualifying Investor AIFs must limit their activities to lending and related activities. 

Thematic Review of Outsourcing Arrangements 

The IFFS conducted a thematic review of Outsourcing Arrangements for Investment Firms, Fund Managers and Fund Service Providers to analyse and test the monitoring and reporting controls employed by firms to mitigate and manage outsourcing risks. The Central Bank recommended questions that the Board of Directors and senior management of firms should consider. 

Latest Fund Statistics 

The Central Bank of Ireland has issued the latest statistics available regarding Irish funds. This includes fund data as well as details relating to new fund launches.



Enforcement of the 2016 Financial Information Published by Issuers Subject to the Transparency Law 

In accordance with the Luxembourg law of 11 January 2008 on transparency requirements for issuers, the CSSF monitors the publication of financial information published by issuers and verifies in particular that consolidated and non-consolidated financial statements are drawn up in compliance with applicable accounting standards. In this context the CSSF issued a press release to draw attention to certain financial reporting topics to be considered by issuers and auditors. 

CSSF press release 17/03 is available in English 

CSSF Press Release 16/45 Regarding Diligence to be Performed by Approved Independent Auditors 

CSSF press release 16/45 of 16 December 2017 highlights certain checks to be performed by approved independent auditors (Réviseur d’entreprises agréé), in relation to investment funds with units admitted to trading on a regulated market within the meaning of article 4, item 14 of the MiFID directive and their status as public interest entities. 

The press release 16/45 is available in English 

CSSF Press Release 16/43 regarding Article 26 (Obligation to Report Transactions) of MiFIR 

Article 26 of EU Regulation No. 600/2014 on markets in financial instruments (MiFIR) contains the obligation for credit institutions and investment firms which execute transactions in financial instruments to report complete and accurate details of such transactions to the competent authority. The CSSF provides additional information in relation to the obligation to report transactions as foreseen by article 26 of MiFIR.

The press release 16/43 is available in English 

CSSF Newsletters - December 2016 and January 2017 

The CSSF published its December 2016 newsletter (number 191) and its January 2017 newsletter (number 192), which provide updates in relation to recent national regulation and statistics. 

CSSF newsletter number 191 is available in English 

CSSF newsletter 192 is available in French 

The ALFI European Alternative Investment Funds Conference 

The Association of the Luxembourg Fund Industry (ALFI) held its annual European Alternative Investment Funds Conference on 22 and 23 November 2016. 

CSSF Press Release 16/41 Regarding the Global Situation of Undertakings for Collective Investment at the End of October 2016 

CSSF press release 16/41 of 5 January 2017 outlines the global situation of undertakings for collective investment at the end of October 2016. 

The press release is available in French on the following CSSF website



HM Treasury Proposes Private Fund Changes to Limited Partnerships Act 1907 

HM Treasury published a draft Legislative Reform (Private Fund Limited Partnerships) Order 2016 (the “Draft Order”) on 16 January 2017 together with an explanatory document: Legislative Reform Order on the Limited Partnership Act 1907. 

The Draft Order would amend the Limited Partnership Act 1907 to introduce a new Private Fund Limited Partnership (“PFLP”) structure which will be available to private investment funds structured as limited partnerships, such as private equity and venture capital funds. It is designed to reduce the administrative and financial burdens which impact these funds under the current limited partnership structure. 

The changes are proposed to come into force on 6 April 2017. 

Read the draft order 

Read the explanatory document 

FCA Publishes Fourth MiFID II Consultation paper 

The FCA published its fourth MiFID II consultation paper on 16 December 2016, which includes proposed clarifications to transaction reporting implementing measures proposed in its earlier MiFID II consultations 

The FCA said one main issue raised in responses to its First MiFID II consultation paper (CP 15/43) was whether trading venues could transaction report through an approved reporting mechanism (ARM). Another issue was whether investment firms could aggregate their reporting through an internal hub. 

The FCA now proposes that that guidance in new guidance in Chapter 9 of its Market Conduct Sourcebook (MAR) will make it clear that trading venues, whether operated by market operators or investment firms, can use ARMs to report transaction reports to it. 

The FCA also proposes to include new guidance permitting a group of investment firms to aggregate their reporting via an internal hub, provided that the hub uses an ARM or is an ARM. 

Read the consultation paper 

FCA Published New MiFID II Authorisation Application Form - Required for All Applications from 30 January 2017 

The FCA published new authorisation application packs on 13 January 2017 with new forms anticipating the changes that will be required for MiFID II authorisation applications, together with a related application and notification user guide. 

The guide addresses: 

  • Applications for new authorisation as investment firms or data reporting service providers, recognition of investment exchanges, variation of permission and change of legal status. 
  • Notifications to provide the FCA with regulatory information from firms, recognised investment exchanges and others, including passport notifications. 

The guide also makes clear that the new packs will be available from 30 January 2017, and: 

“From that point onwards, all applicants applying for a Part 4A permission that will also amount to an initial authorisation under MiFID will have to use these forms. This will be the case irrespective of the investment services and investment activities that will fall within the scope of their permissions.” 

Read more



AIFMD - ESMA Updates Q&As on the Application of the AIFMD

ESMA updated its Q&As on 16 December on the application of the AIFMD.

The revised Q&As include one updated question and answer on reporting obligations by non-EU AIFMs under Article 42 of the AIFMD, clarifying the circumstances under which information on EU master AIFs should be reported to regulators.

The revised Q&As are available 

The relevant press release is available

EMIR - New CCP Recognition, RTS for Uncleared Trades and New Equivalence Decisions

ESMA updated its list of third-country central counterparties (“CCPs”) recognised to offer services and activities in the EU to include ICE Clear US Inc on 14 December.

The full list of recognised CCPs is available

The relevant press release is available

Commission Delegated Regulation (EU) 2016/2251 to EMIR setting out regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty came into force on 15 December

The delegated regulation is available here

ESMA launched a consultation paper on 16 December extending disclosure of aggregated trade repository data.

The consultation is available

The relevant press release is available 

The European Commission issued favourable decisions on 16 December on the equivalence of the regulatory regime for CCPs and trading venues in various non-EU jurisdictions.

The first set of decisions confirms that non-EU CCPs in India, Brazil, New Zealand, Japan Commodities, UAE and Dubai DIFC meet the EU's regulatory standards.

The Commission has also adopted equivalence decisions in relation to Australia, Canada, Japan and Singapore determining that the rules governing trading venues in those countries can be deemed equivalent to those in the EU.

The relevant press release is available

MiFID II - New Q&A on Investor Protection, Commodity Derivatives and Data Reporting

ESMA updated its Q&As on 16 December on MiFID II and MiFIR investor protection topics. The new Q&As provide clarifications on the following topics:

  • Best execution
  • Suitability
  • Post sale reporting
  • Inducements (research)
  • Information on charges and costs
  • Underwriting and placement of a financial instrument

The relevant press release is available 

ESMA issued a new Q&A on MiFID II and MiFIR commodity derivatives topics on 19 December. The Q&A clarifies a number of points relating to the position limits and ancillary activities requirements.

The Q&A are available

The relevant press release is available

ESMA issued new Q&As on data reporting on 20 December. The new Q&As provide responses to questions on:

  • Legal Entity Identifiers (LEI) of issuers; and
  • Date and time of the request of admission and admission

The Q&A are available

The press release is available

Other Regulatory Updates - Market Abuse Regulation

ESMA published on 20 December updated Q&A on the Market Abuse Regulation. The new Q&A include new detailed answers on:

  • the notification of managers’ transactions; and
  • how to handle investment recommendations

The new Q&A are available

The relevant press release is available

Subscribe to Dechert Updates